Global Politics

Ireland braces for financial impact

The World's Laura Lynch reports that people in Ireland are bracing for job losses, tax hikes, and benefit cuts, as the Irish government prepares to release an austerity budget.

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On a snowy night in Dublin, a downtown shopping center is a warm and cheery refuge for those fed up with the weather and the bad economic news.

Santa is doing his part with the children.

Santa � who's also happy to be called Chris � is well aware of what Ireland has been through, and even though he knows the country's minimum wage is about to be cut, that property and other taxes are about to be hiked, that there is real pain on the way for many people, he said he can't support hiking the corporate tax rate � a tax that affects hundreds of U.S. multinationals that are based here.

He said, �America gave us a lot of business here over the years, and I think in fairness, we shouldn't be upping it now.�

Those sentiments reflect a widely held view in Ireland � leave the multinational companies alone.

In Ireland, the corporate tax rate is 12.5 percent. It's among the lowest corporate tax rates in Europe. In the United States, the corporate tax rate is up to 35 percent.

At the Pfizer plant in Newbridge, southwest of Dublin, an automated assembly machine is spitting little pink pills onto a conveyor belt.

They're antidepressants, but not for the Irish � this shipment is on its way to Turkey.
There are about a thousand people working at this Pfizer plant.
In all multinationals � most of them American � employ more than a quarter of a million people in Ireland.
Pfizer vice president Paul Duffy says the corporate tax rate � at 12.5 percent is one reason among several � but a key one.

�We are English speaking, the time zone is good and we have a corporate tax rate that is competitive,� Duffy said. �These are all pillars upon which industry builds itself. From my point of view I cannot see why we would change to a different corporate tax rate and damage the one part of the sector that's actually doing well.�

But countries like Germany and France have long complained that Ireland's tax structure is unfair and distorts competition.

Still, the Irish government rebuffed their demands to raise the corporate tax as part of the bailout negotiations.
Paul Duffy said if those countries want to compete, they know what to do. �Why not lower your rate instead of forcing Ireland to increase its rate?�

In the middle of the debate sit the workers and their unions.
Paul Sweeney, an economic advisor at the Irish Congress of Trade Unions, said Ireland has always been an innovator when it comes to taxes, precisely because it's been a poor nation.

�It was in Ireland in Shannon Airport that there was the first tax free zone,� he said, adding, �We invented that, the same as Irish coffee was invented in Shannon Airport as well.�

Sweeney supported the low corporate tax rate too, but now worries about the future of Ireland's workers. He believes they've been cowed into supporting a hands off policy for big business. �Our own members working for a multinational have been told we'll pull out if we have to pay an extra few percent on corporation tax,� he said.

Companies with long histories in Ireland, like Pfizer and Merck, don't talk about pulling out if the rate is eventually hiked.

But Neil Boyle of Merck said it could hurt the chances for new investment.
�I think that if there were changes to that,� he said, �all companies would want to reassess.�

In the shopping center in Dublin, Stephen O'Flaherty is trying to attract some business of his own.
He owns a kiosk that scans photographs onto coffee mugs, T-shirts, just about anything. Business is slow, and O'Flaherty worries it won't get better anytime soon. He's mad at the government, and not too happy with the banks, but he also defends the multinationals and their low tax rate.

�We've had huge inward investment from the likes of Google, Microsoft, Intel and they've all been attracted here with the lower corporation tax rate,� he said. �When it's providing jobs for people, people understand that and can make the connection.�

It's true that manufacturing and exports are two of the few bright spots in the bleak Irish economy.
Both are still growing.
Boosting the tax that corporations pay by even two percent would mean a lot more revenue for a beleaguered government.
But no major political party � not the one in power, nor those in opposition � wants to mess with the tax that keeps people employed through what will be a tough Christmas season.